Silicon Valley’s New Immigrant Entrepreneurs ••• AnnaLee Saxenian 1999 PUBLIC POLICY INSTITUTE OF CALIFORNIA Library of Congress Cataloging-in-Publication Data Saxenian, AnnaLee. Silicon Valley’s new immigrant entrepreneurs / AnnaLee Saxenian. p. cm. Includes bibliographical references. ISBN: 1-58213-009-4 1. Asian American businesspeople—California—Santa Clara County. 2. Asian American scientists—California—Santa Clara. 3. Immigrants—California—Santa Clara County. I. Title. HD2344.5.U62S367 1999 331.6'235'079473—dc21 99-28139 CIP Copyright © 1999 by Public Policy Institute of California All rights reserved San Francisco, CA Short sections of text, not to exceed three paragraphs, may be quoted without written permission provided that full attribution is given to the source and the above copyright notice is included. Research publications reflect the views of the authors and do not necessarily reflect the views of the staff, officers, or Board of Directors of the Public Policy Institute of California. Foreword In the 1940s, the author Carey McWilliams coined a phrase to characterize California’s penchant for innovation and experimentation. He called it “the edge of novelty” and remarked that “Californians have become so used to the idea of experimentation—they have had to experiment so often—that they are psychologically prepared to try anything.” Waves of migrants and immigrants over the past 150 years of California history have been attracted to our “edge of novelty,” and they have consistently found California a place that fosters creativity and the entrepreneurial spirit. In this report, AnnaLee Saxenian documents one of the latest, and most dramatic, examples of California as a location that attracts immigrant entrepreneurs. Building on her earlier research on Silicon Valley, Saxenian takes a careful look at the role of immigrant capital and labor in the development of this showcase regional economy. She finds that immigrants account for one-third of the scientific and engineering workforce in Silicon Valley and that Indian or Chinese Chief Executive iii Officers are running one-fourth of all of the high-technology firms in the region. We have progressed from the last days of the 19th century, when impoverished Chinese workers were building the American system of railroads, to the end of the 20th century, when highly skilled Chinese entrepreneurs are playing a key role in the development and expansion of the Information Age. Rather than a “brain drain” from the sending countries, Saxenian sees the emergence of a “brain circulation” as immigrants return to their home countries to take advantage of promising opportunities or play a key role in building markets in their native countries from a California base. Saxenian suggests that there is a healthy flow of financial and intellectual capital between Taiwan, India, and California and that this flow has made a major contribution to technological innovation and to the economic expansion of the state. Saxenian locates these findings at the center of the national debate over the role of highly skilled immigrant labor in the expansion of the U.S. economy and whether skilled immigrants are displacing native workers. She concludes that immigrant entrepreneurs in Silicon Valley create both new jobs and important economic linkages that are central to the continuing success of the California economy. The strength of the California economy has historically derived from its openness and diversity—and that is why Carey McWilliams observed that the state and nation benefit from Californians living on “the edge of novelty.” David W. Lyon President and CEO Public Policy Institute of California iv Summary Scholars have devoted considerable attention to California’s immigrants but have focused their research almost exclusively on the low-skilled population. We know very little about the economic contributions of more highly skilled immigrants. The role of high-skilled immigrants is of growing importance to policymakers in California because foreign-born scientists and engineers account for a significant and growing proportion of the state’s workforce. This study examines the economic contributions of skilled immigrants—both directly, as entrepreneurs, and indirectly, as facilitators of trade with and investment in their countries of origin. This research explores the changing relationships between immigration, trade, investment, and economic development in an increasingly global economy. The focus of the study is Asian immigrant engineers and scientists in Silicon Valley. When local technologists claim that “Silicon Valley is built on ICs” they refer not to the integrated circuit but to Indian and Chinese engineers. Skilled immigrants account for at least one-third of v the engineering workforce in many of the region’s technology firms and they are increasingly visible as entrepreneurs and investors. This case has relevance beyond the region. As the center of technological innovation as well as the leading export region in California, Silicon Valley serves as a model and a bellwether for trends in the rest of the state. Debates over the immigration of scientists and engineers to the United States focus primarily on the extent to which foreign-born professionals displace native workers, or on the existence of invisible barriers to mobility, or “glass ceilings,” experienced by non-native professionals. Both approaches assume that the primary economic contribution of immigrants is as a source of relatively low-cost labor, even in the most technologically advanced sectors of the economy. The view from sending countries, by contrast, is that the emigration of highly skilled personnel to the United States represents a significant economic loss, or “brain drain,” which deprives their economies of their best and brightest. Neither view is adequate. The argument that immigrants displace native workers needs to be balanced by evidence that foreign-born scientists and engineers are generating new jobs and wealth for the state economy. Nor is it valid to assume that skilled immigrants will stay permanently in the United States as they frequently did in the past. Recent research suggests that the “brain drain” may be giving way to an accelerating process of “brain circulation” as immigrants who have studied and worked in the United States increasingly return to their home countries to take advantage of opportunities there. Even those immigrants who choose to remain in the United States are playing a growing role in linking domestic technology businesses to those in their countries of origin. vi This study has four goals. First, it seeks to quantify the immigrant engineers’ and entrepreneurs’ presence in and contribution to the Silicon Valley economy. Second, the study examines the extent to which skilled Chinese and Indian immigrants are organizing ethnic networks in the region like those found in traditional immigrant enterprises to support the often risky process of starting new technology businesses. Third, it analyzes how these engineers are simultaneously building social and economic networks back to their home countries that further enhance entrepreneurial opportunities within Silicon Valley. Finally, it explores the implications of these findings for the Silicon Valley and California economies and for public policy. There is widespread recognition of the significance of immigrant entrepreneurship in traditional industries ranging from small-scale retail to garment manufacturing. But we have only anecdotal evidence of immigrant entrepreneurship in the newer, knowledge-based sectors of the economy. Yet it is in these dynamic new industries that immigrants with technical skills and strong connections to fast-growing overseas markets have the potential to make significant economic contributions. Not only are these highly skilled immigrants more mobile than their predecessors, but the technology industries where they are concentrated are California’s largest and fastest growing exporters and leading contributors to the state’s economic growth. This study employs a mix of research methods and strategies to address the challenges of limited data availability. It relies on three primary sources: (1) Data on immigrants’ education, occupations, and earnings reported are drawn from the Public Use Microdata Sample (PUMS) of the 1990 census; (2) the analysis of immigrant entrepreneurship is based on a customized Dun & Bradstreet database of vii 11,443 high-technology firms founded in Silicon Valley between 1980 and 1998; and (3) the balance of the findings reported in the study are based on more than 100 in-depth interviews with engineers, entrepreneurs, venture capitalists, and other key actors in the Silicon Valley and San Francisco. In addition, 25 interviews were conducted in the Taipei and Hsinchu regions of Taiwan and 42 in the Bangalore, Bombay, and Delhi regions of India. The study demonstrates that foreign-born engineers in Silicon Valley’s technology industry make a substantial and growing contribution to regional job and wealth creation. In 1990, immigrants accounted for 32 percent of the region’s total scientific and engineering workforce. Their numbers have most likely increased since then, but reliable data will not be available until the next decennial census (2000). The focus on Chinese and Indian immigrants in the balance of this study is driven by the results of this analysis, which shows that in 1990, two- thirds of the region’s foreign-born engineers were from Asia. Of these, Chinese